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Call it the profitable skies. The once-volatile airline industry is flush with cash, thanks to a rare four straight years of profit, including an estimated $12.9 billion in 2013. The emboldened carriers are spending the money, ordering fuel-efficient planes that can further boost margins. Boeing and
Airbus Groupair.fr -1.2256904722993953%Airbus Group N.V.France: ParisEUR60.44
-0.75-1.2256904722993953%
/Date(1427841384000-0500)/
Volume (Delayed 15m)
:
2340555
P/E Ratio
20.214046822742475Market Cap
48033475831.9817
Dividend Yield
1.240900066181337% Rev. per Employee
437975More quote details and news »air.frinYour ValueYour ChangeShort position
are basically sold out through 2017, with a combined backlog of 10,600 planes.

Airlines will pay hundreds of billions of dollars for the new aircraft -- seats not included. As the planes are finished, it's actually Wellington, Fla.–based
B/E Aerospacebeav -0.5782153461478357%B/E Aerospace Inc.U.S.: NasdaqUSD63.62
-0.37-0.5782153461478357%
/Date(1427835600149-0500)/
Volume (Delayed 15m)
:
935877AFTER HOURSUSD63.62
%
Volume (Delayed 15m)
:
20394
P/E Ratio
23.304029304029303Market Cap
6780572383.81851
Dividend Yield
N/ARev. per Employee
270251More quote details and news »beavinYour ValueYour ChangeShort position
(ticker: BEAV) that adds many of the final touches. B/E is a longtime leader in airline seating, oxygen systems, and lighting. The stock, already up 50% in the past year to a recent $88.38, could jump another 25% in the next 12 months, as it continues to benefit from favorable trends.

"You have seven to eight years of production visibility," says Peter Arment, who covers aerospace and defense for Sterne Agee.

B/E has its own backlog worth $9 billion, and sales have been growing at a 21% annual clip over the past three years, far faster than Boeing (BA) or Airbus (AIR.France). This year, B/E earnings are set to grow 23%, to $454 million, or $4.35 per share, with revenue up 16%, to $4 billion.

DESPITE A GRUDGING new respect for airlines -- shares of
Delta Air Linesdal -1.3169446883230904%Delta Air Lines Inc.U.S.: NYSEUSD44.96
-0.6-1.3169446883230904%
/Date(1427835731974-0500)/
Volume (Delayed 15m)
:
9526634AFTER HOURSUSD44.99
0.03000000000000110.06672597864768683%
Volume (Delayed 15m)
:
137912
P/E Ratio
58.38961038961039Market Cap
37553832206.184
Dividend Yield
0.800711743772242% Rev. per Employee
504727More quote details and news »dalinYour ValueYour ChangeShort position
(DAL) are up 138% in the past year -- plenty of investors still shun the carriers. "That industry has never really appealed to us, given the capital intensity of it," says Matthew McGeary, a portfolio manager at Eagle Asset Management. "We have historically played the suppliers." McGeary, who specializes in small- and mid-cap stocks, thinks B/E, which has a market value of $9.3 billion, is primed to benefit from airlines' fixation on profit and the efficient use of space.

At 20 times expected earnings for the next 12 months, B/E isn't a cheap stock, but it still looks reasonable, given its performance during prior aerospace cycles. In 2005, midway through the last new aircraft binge, B/E traded as high as 24 times forward earnings. At just 22 this time around, B/E would be worth $112 (based on a 2015 EPS estimate of $5.11).

Unlike Boeing and Airbus, whose schedules are largely set, B/E could still surprise investors. "They've done really well in getting content on new builds," McGeary says, but he thinks the market is now underappreciating the retrofit opportunity. Airlines often update interiors due to wear and tear, but new planes can also drive upgrades. As the carriers put new jets into service, "they like to have commonality with their interiors," says Sterne Agee's Arment, who rates B/E a Buy and has a $111 price target on the shares.

B/E says the first quarter of the year will be its best ever in terms of bookings. Last week, the company announced an additional $600 million worth of seating awards from seven airlines. Since it was founded in 1987, B/E has worked directly for the airlines; every major carrier is a customer. But in recent years, B/E has established closer relationships with Boeing and Airbus, inserting itself into the production process.

B/E recently signed its first-ever contract to make lavatories for planes. Boeing has committed to using them in the next version of its popular 737 jet.

B/E Aerospace/BEAV

Recent Price

$88.38

52 Week Hi-Lo

$89.82-$56.08

Market Val (bil)

$9.3

EPS 2013

$3.55

EPS 2014E

$4.36

2014 P/E

20.3

E=Estimate Source: Thomson Reuters

"That's a big endorsement," Arment says of the Boeing deal. By essentially having its products built into planes, B/E will have an even better chance to win the retrofit business when those parts are eventually replaced.

The new lavatory combines B/E's existing expertise in wastewater and oxygen systems. It's an easy sell. Improved plumbing shrinks the bathroom's footprint, allowing airlines to add as many as six additional coach seats in every cabin.

FOR THE CARRIERS, every dollar counts. Despite the recent success, flying is still a low-margin business. The International Air Transport Association, an industry trade group, estimates that airlines will make just $5.65 per departing passenger in 2014.

B/E is managing to outgrow the industry because of its outsize exposure to wide-body planes, which could represent 35% of total new production by 2018, according to Topeka Capital Markets, up from 25% in 2012.

The Bottom Line

From coach seats to super first class, B/E helps airlines drive revenue gains. As aircraft output grows, so does B/E's opportunity. Shares could rise 25% in a year.

The jumbo jets represent a sweet spot for B/E; they carry up to four times as many seats and have various classes of service, including the so-called super-first-class suites where B/E is the dominant player. Super-first-class units, which cost the carriers $250,000 apiece, promise fliers an almost private cabin with perks like lie-flat seating, bars, closets, flat-screen TVs, and mood lighting. B/E hails them as services previously reserved for heads of state and other VIPs.

Luxury seating has become an important part of airlines' marketing campaigns, as well. After all, unless peanuts are your thing, there's not much left to brag about in coach these days.